Legislative Framework

Monday، 20 July 2009 12:00 AM

AAA

Egypt offers guarantees and incentives to provide the best investment climate and maintain the rights of investors as well. In this regard, laws have been enacted to give companies and individuals the right to import all the required materials, equipment and spare parts and allow them to export their products without any obstacles.

The issued laws provide tax exemption for five years on the revenues of trade and industrial activities as well as the profits of the companies and institutions.

The tax exemption extends to 10 years as regards the companies established in remote areas and new urban communities.

Inland Investment

Investment law No. 8 is enacted to attract foreign investors and thus applies only to a specific number of activities:-
• Reclamation and cultivation of barren and desert lands
• Animal, poultry and fish production
• Manufacturing and mining
• Preparation and development of selected industrial zones
• Hotels, motels, hotel apartments, tourist villages and tourist transportation
• Cooled transportation of goods, refrigerators for the purposes of storing crops, manufactured products and foodstuffs, container stations and grain silos
• Air transport and directly related services
• Overseas maritime transport
• Petroleum services in support of drilling, exploration as well as gas transport and delivery.
• Housing complexes for the purposes of full, unfurnished lease for noncommercial users
• Infrastructure operation including potable water, sewage, electricity, roads and communications
• Hospital, medical, and therapeutic centers that offer 10 per cent of their capacities free of charge
• Financial leasing
• Underwriting of subscription to securities
• Venture capital
• Production of computer programs or systems
• Projects financed by the Social Fund for Development
• Development of new urban zones
• Software designing and production
• Establishment and management of technological zones
• Credit classification
• Deductions
• Establishment, management and operation or maintenance of river transportation for groups within and between new cities and urban communities
• Performance management of industrial projects
• Collecting garbage, waste disposal (whether of production or service activities), and waste treatment

Investors engaged in sectors not covered by law No. 8 are subject to corporate law No. 159 of 1981. In both cases, The General Authority for Investment and Free Zones (GAFI) acts as the official regulator for all incorporations and licenses.

Among the incentives and guarantees, are protection against expropriation and compulsory pricing, full right of profit and dividend repatriation, no export requirements, access to dispute resolution committees administered by GAFI, unfettered access to land in Upper Egypt.

Other incentives include a standard income tax rate of 20% (oil & gas sector companies at 40.55%), a 10–year tax exemption for land cultivation and production activities related to live stock, poultry and fish, export duty ranging from 5–25% of the value of whole sales transactions, and import duties ranging from 2-32%.

Investment Zones

Investment Zones were created under Law No. 19 of 2007, which introduced a new investment scheme never included before in the Investment Guarantees and Incentives Law, which is the Investment Zones system. The new law allowed the establishment of investment zones as per a Prime Minister decree to be exclusive in whatever investment domain stipulated by the law, and the provisions of articles number 30, 31.38, 41, 42.46 which are mentioned in the investment law are applied on these zones.

The Prime Minister's Decree No. 1675 of 2007 was issued to regulate work at investment zones.

Southern Egypt Development Program

The Egyptian government believes that Upper Egypt is a region that has the potential to develop into a new hub for both manufacturing and services projects. Governorates located in southern Egypt are equipped with many competitive advantages: 30% of Egypt's total population, abundant natural resources and a diversified economic base.

The government has put in place various initiatives to encourage investment in Upper Egypt; the establishment of clusters, investment incentives and employment grants; free land to investors in Upper Egyptian governorates (with the exception of Fayoum); technical assistance through Egypt's Industrial Modernization Center (IMC); and technology centers and training.

The Upper Egypt Development Company is a company that has been established to encourage private-sector investment in Upper Egypt. The Company currently has two branches in Cairo and Assiut and has begun to launch projects in several governorates. A new road has been established to link Upper Egyptian governorates with Safaga Port and Sohag Airport.

Companies established within southern Egypt are incorporated in accordance with investment law 8 of 1997 or law 159 of 1981(Inland Investment).

Special Economic Zones (SEZ)

Law 83 of 2002 established Special Economic Zone that provides significant incentives and competitive advantages for investors. Each of the zones is autonomous and has its own board of directors who handle incorporation, licensing procedures as well as other investor services.

The North West Suez SEZ was the first zone created under the said law, and will serve as a model for the future development of other zones in Egypt. The North West Suez SEZ stretches over 20 square kilometers strategically located directly adjacent to the Sokhna Port about 45 kilometers southeast of Suez City near the southern entrance of the Suez Canal.

Within close proximity to the North West Suez are several projects incorporated under the general land investment regime, which create an additional flow of commercial activities to the Sokhna Port.

Qualifying Industrial Zones (QIZs)

The QIZ protocol between Egypt and the United States grants certain products manufactured in Egypt preferential access to the United States as long as they satisfy the rules of origin related to local content. They are currently 19 QIZs located within 4 geographical areas: Greater Cairo, Middle Delta, Alexandria and the Suez Canal Zone.

Both Egyptian and Israeli companies must contribute and maintain at least 10.5 % of the minimum 35% local content required under the legislation in order to qualify duty-free access to the US.

Manufacturers on both sides must also contribute and maintain at least 20% of the total cost of production of goods eligible for duty/-free access, excluding profits, even if the cost cannot be considered as a part of the 35% minimum content requirement.

For this purpose, costs may include originating materials, wages and salaries, design, research and development, depreciation of capital investment and overheads.

The QIZ protocol was signed in December 2004, and today they are 705 companies eligible to export under QIZ. QIZs are expected to help further develop Egypt's robust textile and garment industry as well as supporting sectors.

Free Zones

Egypt has been advocating the creation of Free Zones since the early 1970s in an attempt to increase exports, attract foreign investment, introduce advanced technology and create more job opportunities. Free Zones are located within national territory but are considered offshore areas. Investors operating inside the Free Zones must export more than 50% of their total production. To facilitate import/export procedures, Free Zones are usually located adjacent to sea ports and airports.

There are two different kinds of Free Zones; public and private. Egypt currently has nine Free Zones located in: Nasr City, Alexandria, Port Said, Suez, Ismailia, Damietta, Shebein El Kom, Media Production City and Keft. Two additional free zones are under development in Badr and East Port Said. Among the Free Zone incentives and guarantees are a lifetime exemption from all taxes and customs; exemption from all import/export regulations; the option to sell a certain percentage of production domestically if custom duties are paid; and limited exemptions from labor provisions. Tax incentives for energy intensive industries operating in Free Zones (fertilizers; iron and steel; petroleum production; and production, liquefaction and transportation of natural gas) have been abolished as of May 2008. In addition, all equipment, machinery and essential means of transport (excluding sedan cars) necessary for maintaining the licensed activities of a project are exempted from all customs•

Egypt’s Free Zones Offer Competitive Utility Prices: A new pricing mechanism for electricity used by energy-intensive industrial sectors (above 50 million kilowatts) is currently being applied to all sectors with the exception of food processing and textiles. Electricity costs are approximately 4 cents/kilowatt (KW). Potable water costs are approximately 20-30 cents per-cubic-meter. Fees and Charges Applicable to Free-Zone Companies: Manufacturing or assembly projects pay an annual charge of 1% of the total value of their products excluding all raw materials. Storage facilities are to pay 1% of the value of goods entering the Free Zones while service projects pay 1% of total annual revenue. Goods in transit to specific destinations are exempt from any charges.

Land Rental Prices are as Follows: US$ 3.50 per square meter per year for industrial projects; US$ 7.00 per square meter per year for all other projects (storage and services). A reduction of 50% of the above rate is available in three of the nine public free zones: Ismailia (for industrial and service projects only), Damietta and Shebein El Kom.

Private Free Zones: In addition to public Free Zones, private zones may also be established, each limited to a single project. The same privileges and incentives granted to public free zones apply to private zones as well.

Public-Private Partnership (PPP)

Not only is the state encouraging more foreign and inland investment in the country's burgeoning industrial and services sectors, but they have also allowed the private sector to deepen its participation in the economic reform process through a public-private partnership (PPP) strategy that aims to enhance the quality of services available in the country while simultaneously decreasing the financial burden on the government.

In 2006, the Ministry of Investment initiated a comprehensive PPP promotion strategy, which included the creation of a legislative and institutional framework that will facilitate the execution of major PPP infrastructure projects and encourage more local and foreign investors to partner with the government in priority sectors including water, transportation, health and education.

On the legislative front, the Ministry of Finance is currently drafting a new PPP legislation to govern the relationship between the government and the private sector detailing the responsibilities of each side. The law is expected to become final later this year.

On the institutional and capacity building fronts, a joint PPP Unit has been established by the Ministries of Investment and Finance. Sector specific regulatory agencies have also been established to deal directly with various projects that are already in the works.

Between 1990 and 2005, the private sector was involved with PPPs in four infrastructure domains, including telecommunication, transportation, water and sewage, carrying out 20 projects with a total investment of US$ 7.5 billion. The telecom sector accounted for the lion's share of investment at US$ 5.27 billion. This was, however just the beginning of a successful experiment that the government intends to replicate and vastly expand in the future. More recently, the government has tendered for the construction and operation of schools as part of program aiming to build 2,210 new schools; fresh and sewage water treatment projects in Cairo and Borg El Arab; and billions of dollars in new highway projects that will speed traffic between the nation's north and south, between industrial zones and ports.

In the transportation sector alone, a projected US$ 16.45 billion in public and private investments will target upgrades in railways, roads, ports and Nile transportation during the next five years. According to the Egyptian Ministry of Transportation, US$ 9.14 billion of private-sector investments will go into ports; US$ 5.48 billion will go into building and upgrading roads and US$ 3.66 billion will go into railways. Approximately one third of total investments will come from the state and the rest will come from private investors.

Foreign companies have already placed sizable investments into Egyptian ports. Danish shipping and oil group AP Moller – Maersk signed an agreement with the Egyptian government to double the capacity of it s East Port Said terminal by 2011. In October 2007, Dubai port operator DP World acquired a 90% stake in the Egyptian Container Handling Co., located near the mouth of the Suez Canal for US$ 670 million.

In the field of education, the Egyptian Education Initiative (EEI) is a PPP between the government of Egypt, the World Economic Forum's IT member community and multinationals including Cisco, HP, Intel, Oracle, IBM, Microsoft, Siemens and Computer Associates. The initiative supports Egypt overall education reform efforts and maximizes the potential for a collaborative partnership. The main objectives of the initiatives are to improve the development and delivery of education, to raise the quality of teacher training, to develop skills needed for a knowledge society and to provide education to a wider sector of the population.

The increased involvement of the private sector in major initiatives reflects the government firm commitment towards upgrading the quality of services and facilities for its citizens.